Pearl Foods - Business Based Farmer Cooperatives

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  • Jekoniah and his family of 7 are leaving poverty.
  • Statistics shown are for East Africa and are approximately true nation by nation. High level view brings clarity to thousands of statistics. Using ½ approximation makes the underlying issues memorable, easier to understand, and focuses solutions more appropriately. Identifying the key summary statistics shows the relationships between thousands of underlying numbers.
  • Here is a typical ‘market’ for farmers: come and stand by the side of the road. Clearly that is a market that can serve only nearby farmers.It is widely agreed that in the developing world: Farmers lack access to marketsMiddle men are largely exploitativeExport crops are best bet. The first two are correct. However, export crops aren’t the best solution because meeting international standards is expensive, marketing internationally is expensive, and local demand, including high rates of malnutrition continue unaddressed. Export crops are favored because local markets are undeveloped. Typically, aid organizations speak of creating ‘market linkages’ to solve the lack of access to markets. However, to speak of linkages ignores the situation on the ground. There is no healthy distribution system in the poorest nations to link farmers into.The farmer’s biggest problem is that they are too small. They cannot meet local demands because they are too expensive to work with one-by-one and because they are not operating in a commercial fashion.Also notice that aid orgs are by their very nature not well positioned to solve the market problem – how can they enter a negotiation? What’s needed are business to enter into this opportunity/problem.
  • Here is a typical ‘market’ for farmers: come and stand by the side of the road. Clearly that is a market that can serve only nearby farmers.It is widely agreed that in the developing world: Farmers lack access to marketsMiddle men are largely exploitativeExport crops are best bet. The first two are correct. However, export crops aren’t the best solution because meeting international standards is expensive, marketing internationally is expensive, and local demand, including high rates of malnutrition continue unaddressed. Export crops are favored because local markets are undeveloped. Typically, aid organizations speak of creating ‘market linkages’ to solve the lack of access to markets. However, to speak of linkages ignores the situation on the ground. There is no healthy distribution system in the poorest nations to link farmers into.The farmer’s biggest problem is that they are too small. They cannot meet local demands because they are too expensive to work with one-by-one and because they are not operating in a commercial fashion.Also notice that aid orgs are by their very nature not well positioned to solve the market problem – how can they enter a negotiation? What’s needed are business to enter into this opportunity/problem.
  • Aid orgs don’t understand market BUILDING. Instead, they are looking for markets to plug into – that don’t exist. That’s why they do better when they work with export crops.
  • Farmers: business people that work hard, are transparent, compete with the world, and owners of AssociationTeams: provide training, communication, and organization to members; direction to Association (idea from microfinance)Association: increase quantity and quality of crops, arrange for finance, improve lives, owner of Joint VentureCheetah: provide investment money, audit management of Joint Venture and Association, owner of Joint Venture Joint Venture: Manage investments like warehouses and machines, find markets
  • Work together so that aggregated production can address giant market, be registered so that banks have a legal entity to loan to, have small sub-groups (Teams) to provide peer pressure loan enforcement and planting practices Get good training and access to high quality farm inputs to produce commercial yields per acre and qualityGet access to large loans to afford quality inputs, loans provided in kind – no cash givenGuaranteed markets (not ‘linked’) so that loans and farmer are secured, loan repaid by crop delivery, profits paid directly to farmer (usually to bank account opened in their individual name)
  • Pearl Foods - Business Based Farmer Cooperatives

    1. 1. from TM TM
    2. 2. Pearl’s objective is to be a cooperative owned by small-holder farmer groups. Summary: • Develop coops for small holder farmers. • Increase production with training, quality inputs, and loan guarantees • Specialize in market provision 2
    3. 3. Solving Underlying Problems Changes Lives Most of the poor are subsistence farmers: in East Africa is 60-90% of the people. The poverty is profound and the needed change needs to be just as deep to last. Underlying Problems
    4. 4. The story of subsistence farming 4 Halves of Have-Nots Underlying Problems AGRICULTURE WITH FOOD CROP FOCUS NEEDED
    5. 5. Farmers produce little for sale • So no commercial loans • So no reliable market causing much waste Food businesses lack crop inputs • So limited growth and investment • So they import needed volume competing with nearby farmers Dysfunction in the Food Value Chain Pearl must work on both halves because the problems are linked in a Vicious Cycle Underlying Problems Markets Solutions are Needed Too
    6. 6. Agricultural Value Chain Analysis - Tanzania Cooperatives Ecology Farm Inputs Crop Mgmt. Markets ValueChainComponents 1)Farmer Groups 2) Soil 3) Inputs 4) Harvest 5) Markets 4c) Storage 4e) Preservation 4d) Processing 5a) Retail Markets 5d) Import Competition 5c) Exports 5b) Wholesale Buyers 4b) Trucking and Roads 4a) Taxes 3a) Finance Guarantees 3b) Finance 2a) Climate 2b) Plant Diseases 2d) Fertility 1b) Government Regulations 2e) Agronomists 1a) NGO Organizing Assistance 3c) Agridealers 3d) Imported Supplies 5e) Local Competition 1c) Culture 3e) Local Seed Production 2c) Land Access Color code: Green is workable Yellow indicates difficulties Red is serious problems Underlying Problems
    7. 7. Farmers Lack Access to Crop Input Finance Underlying Problems • With careful manual application, it costs $200- $1000 per acre for seeds, fertilizer and treatments • There is not enough money in aid to lift farmers out of poverty. BIG LOANS are needed; more than microfinance offers farmers. • Microfinance constrains people to subsistence.
    8. 8. • What is a market? -List of buyers to negotiate terms (a business function) • Distribution systems lacking so need market building (rather than ‘market linkages’) • Access paradox: market is BIG but farmer is SMALL (too small to connect) Farmers Lack Access to Markets Underlying Problems
    9. 9. Interlocking Relationships • Interconnecting finance, markets and farmers is needed • Many microfinance and development programs disconnect them • Local commercial banks need to be involved for sustainability Finance Markets Farmers and Production Underlying Problems
    10. 10. Key Conclusions • Focus on food crops is needed (export crops are only used because markets are easier) • Massive volume is needed to meet local market needs – so big groups required • Farmers should and are able to produce more but can’t without… • Large loans and guaranteed markets, which are lacking Underlying Problems
    11. 11. Strategy: Link Many Farmer Groups Create coops/farmer companies that are formed from small farmer teams. Link coops into a large company for strength and market access.
    12. 12. Coops are the Answer: • Cooperatives have been a model for lifting farmers for over 200 years (1810 in USA) and all cultures • They provide sharing of production expenses and joint marketing, financing and purchasing They fail in Africa for three primary reasons: • Lack of trust - corruption • Shortage of finance • Unreliable market access dominated by middlemen 12
    13. 13. Successful Coops Need All FINANCE (inputs and equipment) PURCHASE LEVERAGE (discounts on inputs, equipment, services, etc.) SHARED SERVICES (equip rental, insurance, storage, processing) Group strength for MARKETS (larger, reliable supply gets a higher price) Coops 13
    14. 14. FARMING,MARKETSANDFINANCE Farmer Group Farmer Group New Coop Structure Accountability and mgmt with Teams of 5-15 self-selected farmers Structure is a combination between savings/microloan groups and coops Pearl Foods is Joint Venture Between Farmers Groups and Cheetah JV is unifying point for coop marketing. Controlling crops secures investments Multiple farmer groups come to own Pearl; business is divided naturally Timu Wakalimu Team Farmers Farmer Group Team Farmers Pearl Foods Cheetah (& Loan Guarantors) Masoko, Markets Benki, Bank Finance and Accounts Wateja Customers (Buyers of Crops)
    15. 15. Strategy: Commercialize Farmers Beyond subsistence to sustenance: Maize fields planted on the same day. (Pearl supported farmer on left.)
    16. 16. 4 Steps to Leave Subsistence Poverty 1. Organizing in Registered Groups 2. Technical Farming (Agronomy and Inputs) 3. Large Commercial Loans 4. Guaranteed Markets Farmer Commercialization Pearl prefers to partner with NGOs Pearl’s focus and income Partner w/ local banks (metafinance)
    17. 17. Strategy: Provide Finance Beyond subsistence: Maize fields planted on the same day. (Pearl supported farmer on left.)
    18. 18. Greasing the Wheels Agriculture & Food Markets Finance Pearl focuses on markets and finance because most lacking in traditional development approaches. Results need to start with markets not ‘link’ later
    19. 19. Cheetah Innovation: Metafinance with Catalytic First Loss Capital • Metafinance reaches groups rather than individuals • Paves the way for commercial bank finance – provides collateral farmers lack to get needed loans • Metafinance linked to another innovation: catalytic first loss capital • Risk tranches allow for wider participation of lender types • Cash sits in bank lending to farmers, unlocking finance Sub-Debt 2 (Mission Driven Investors) Program Absorbed Risk Possible Government or Major NGO Shared Risk Program (45-60%) Senior Debt (Low Risk; Protected by Other Investors) Sub-Debt 1 (More Risk but still Protected by Other Investors) 10% 20% 20% 50%
    20. 20. Summary and Conclusion
    21. 21. DevelopmentProcess Grow Enterprise Increase number of farmers Allow successful farmers to double loans Increase coop mgmt training Initiate Activities Begin with harvest to establish mutual trust Continue with finance for trusted members Organize Recruit members and train Legally register groups Arrange for finance and markets Select a Target Village Choose target villages based on productivity, work ethic and trust Hold meetings in many villages and choose best
    22. 22. Mission Summary Strategies: • New form of old success: strengthen coops with sub- groups (teams) and JV • Commercialize farmers • Include significant finance • Interconnect with guaranteed markets Crops Investments (Markets and Finance) Cash
    23. 23. Thank You! www.CheetahDevelopment.org 23

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